When we think about water risks, the first thing that comes to mind is water scarcity. It is undoubtedly the most significant factor that could disrupt business operations and food supply chains and dampen economic growth. However, another dimension of water risks can exacerbate water scarcity, namely infrastructure. A crucial, yet overlooked water risk, water supply disruptions from faulty and outdated infrastructure lead to operational disruptions and loss of revenue for water-reliant businesses. A study by the American Society of Civil Engineers (ASCE) [1] sheds light on the scale of the impact on businesses in the United States:
In order to mitigate the financial impact of infrastructure risks and close the investment gap, a $136 billion annual investment in US infrastructure until 2039 is needed, totaling $2.2 trillion by the year 2039, as per estimates of the ASCE.
The numbers for the United States are staggering, and the situation is similar worldwide. So, what makes infrastructure a risk, and how does it impact a business’s operations?
Infrastructure deteriorates over time and can lead to more than 50% water losses
Most of the water supply infrastructure around the world, including large dams, transportation systems, and water supply systems, was built from the 1950s through the 1980s, which means that these structures are more than 50 years old, and many of them are at the end or have surpassed their useful lives. For example, in the United States, the average age of the pipeline network is 45 years [2].
As the materials used in the construction age, they lose their properties and are easily damaged. This is one of the main reasons for water losses in water supply networks. Steel corrodes in the soil and becomes weaker to the point where it breaks. Water losses in water-scarce regions exacerbate the lack of water and accelerate the depletion of water in reservoirs.
For example, if a water supply network should supply 100 liters/day but has 50% water losses, only 50 liters/day reach the consumers, but the reservoirs empty at a rate of 100 liters/day (2x faster). This also means a loss of revenue for the water utility company, which will bill the consumers for their consumption, in this case, equal to 50 liters/day. So its revenue will be 50% lower!
According to ASCE’s Report Card for America’s Infrastructure 2021 [3], a water main break occurs every 2 minutes. That means 6 BILLION gallons (22.7 million cubic meters) of treated water are lost each day in the United States. This represents 15% of the total freshwater supply per day, equal to 39 billion gallons (147.6 million cubic meters). Breaks of old sewage pipes release wastewater and contaminate the soil and the groundwater. While there is no indicator accounting for this impact, it is a substantial environmental risk. Nowadays, new and more robust materials enable water structures and pipelines to withstand larger loads while keeping the design economically efficient and reducing water loss.
Adapted from: ASCE: The Economic Benefits of Investing in Water Infrastructure
Source: DVGW water impulse Sustainable function and value retention of Water supply infrastructure – A cross-generational task for Municipalities and water suppliers alike
Design standards have evolved
Modern design standards have changed significantly from how they were 50 years ago. Whether it is the Eurocode, the most widely used design standard in Europe and in many other countries around the world, or the American Society of Civil Engineers Standards, a blueprint for many civil design standards around the world, there have been major safety updates as a result of structural failures and natural disasters. As engineers have accumulated knowledge from successes and mistakes, the standards have evolved to include a larger margin of safety and encompass a variety of use cases and load combinations. The seismic design has significantly evolved in the last 50 years triggered by several large and deadly earthquakes, such as the 1989 Loma Prieta earthquake in California, the 1960 Chile earthquake, the 1995 Kobe earthquake in Japan, and most recently, the 2011 Tohoku earthquake in Japan. By observing the failure mechanisms and types of damages, engineers can strengthen the design standards in a way that would prevent future damages. This prevents costly system failures, which could lead to long-term supply disruptions or permanent damage to facilities. In a world of rapidly aging water infrastructure built according to old design standards, the potential for failures is high and this can cost businesses a lot.
Source: Ageing Water Storage Infrastructure: An Emerging Global Risk
Investment and maintenance are key
When it comes to the longevity of water infrastructure, a proactive approach to investments in maintenance and upgrade ensures the stability of water services. According to ASCE’s Report Card for America’s Infrastructure 2021 [3], 47% of the maintenance work undertaken by US water utilities is reactive and results from a system’s failure. This means that there is a significant opportunity to improve maintenance programs and strengthen the quality of the water service. Even though outdated infrastructure is a global risk, it could be well mitigated with a proper maintenance and upgrade program. Therefore, business leaders should pay attention to how governments and utilities are upgrading their existing infrastructure and whether they are investing in new facilities. In the era of climate change adaptation could mean the difference between value creation and destruction, therefore, the ones who are prepared to meet the challenges are the ones to succeed.
Political stability enhances water infrastructure security
The lack of a strong central government and a sound regulatory framework weakens the control over water infrastructure and reduces the number of investments, often leading to a deterioration of infrastructure and increasing the risk for the population from a structural failure. This creates conditions where businesses cannot operate safely, thus they have to reduce their presence or leave a certain country. Sometimes, this goes beyond gaps in laws and grows to be a full-scale political and diplomatic crisis, even a man-made disaster. There are a number of examples in recent years when political instability has led to the weaponization of water infrastructure. Some of the most prominent examples are the occupation of the Mosul Dam in Iraq by the Islamic State [5], the Kakhovka Dam collapse in Ukraine, making more than 1 million hectares of arable land in the south of the country unusable in the next 3 to 5 years [6] and the most recent and tragic event, the collapse of 2 dams near the Libyan city of Derna leading to the death of more than 11,000 people and causing widespread devastation. These examples reinforce the notion that water infrastructure is part of national security and is directly impacted by political turmoil and inaction. Hence, before entering a certain country or region, companies should pay attention to political stability and how it can influence water supply security and subsequently their revenue.
Look out for cyber attacks!
The 21st century is all about digitalization and the water sector is the hotspot. Unfortunately, this makes it more vulnerable to cyber attacks, which have increased worldwide by 125% in 2021 compared to 2020 [7]. A report by AWWA [8] puts cyber security as the number one priority for the water and wastewater sector and emphasizes its importance for public health and safety. Cyber attacks can impose a full stop on the operations of utility companies cutting the water supply, causing loss of data and even leading to drinking water contamination. By questioning the preparedness of utility companies to respond to cyber attacks, businesses have a better picture of the risks they are exposed to and what mitigation actions to undertake.
Waterplan can assess infrastructure risks
Recently, Waterplan added to its suite the infrastructure risk indicators, which allow companies to assess infrastructure risk on a national level. The indicators give valuable insights into:
Investments in national water infrastructure
The development of water infrastructure strengthens water security and contributes to economic growth so businesses should be aware of whether national governments are proactively investing in this sector. Low investments are a prerequisite for increased risk for businesses stemming from water scarcity, floods, and pollution. This reduces business resilience to water risks and creates a potential for reduced revenue from water supply disruptions and floods. Countries making more investments in modern water infrastructure create better conditions for businesses to thrive.
Non-revenue water
Non-revenue water is not only a financial concern for utilities but can also be an obstacle to providing a reliable service at an affordable price. For businesses, this means a potential risk of increased water costs and water supply interruptions. It can also be an indicator of the amount of water that is leaking and the potential for a more significant main break or contamination issue. Increased NRW in water-scarce areas is of great concern because it means that water is being wasted before reaching consumers and water fees could be increased so that utility companies close gaps in revenue.
Age of infrastructure
This creates a risk for businesses of water supply interruptions, floods, increased water fees, and increased costs for the transportation of goods and raw materials. Insufficient capacities in terms of water storage, hydropower production, and flood mitigation could dampen economic growth. In high-growth economies, where the population and businesses are growing rapidly demanding more water, energy, and food, aging infrastructure could dampen the growth by failing to supply enough water of sufficient quantity and quality, energy, and flood protection. Old infrastructure has also a significantly high risk of material failure due to outdated materials, and insufficient design using old design standards.
Overall, infrastructure water risks can be very disruptive for businesses so the timely assessment of this risk can save billions of dollars of value. Waterplan can help shed more light on these potential risks to mitigate its consequences.
